Daily Analysis – Weak Economic Data Sends US Markets Sharply Lower

Equities

In Asia, the region’s markets closed little changed despite a report that factory growth in China is slowing. The Nikkei rose .3% to 9720, and the Hang Seng slipped .2%, while the Kospi, ASX 200 and Shanghai Composite closed within .1% of their previous close.

A very different scene unfolded in the West. European markets fell, as the FTSE, DAX and CAC40 all slumped more than 1% in afternoon selling following the release of weak US economic data, which showed disappointing manufacturing growth, coupled with weak job growth.

US markets were battered by the weak data, as investors dumped stocks. The Dow tumbled 280 points to 12290, and the Nasdaq and S&P both sank 2.3%. Financial stocks fell more than 4%.

Car makers slid, led by GM which dropped 5% after reporting a decline in sales for May.

Tech shares were also hit hard. Research in Motion slumped 6%, and Juniper shares fell nearly 10%.

Treasuries and Commodities

Bonds rallied, with 10-year notes gaining a full point, pushing the yield below 3%, down to 2.94%. 30-year notes advanced 1 20/32 to yield 4.13%. Moody’s downgraded Greece’s debt once again, pushing it into junk status.

Crude oil fell 2.70 to settle at $100, and gasoline futures fell 1.8%. Copper skidded 1.9% to 4.10 and silver fell 2.2%, while gold closed flat at 1536.

Currencies

The Swiss Franc was once again the primary beneficiary of yesterday’s selloff, rallying 1.3% as a flight to safety, coupled with strong Swiss data raised the appeal of the Franc. The Yen, another safe-haven choice, rose .7% to 80.90. The Euro slid .4% to 1.4343, while the Pound and Canadian Dollar fell .7%.

Economic Outlook

Wednesday’s data resurrected concerns of a double dip recession with surprising weakness in the economy. Discussions have begun about a possible QE3 from the Fed, although at the moment that looks unlikely.

The ADP Employment Report showed a gain of just 38K private sector jobs in May, steeply below estimates for a 177K gain. This report is often seen as a barometer for Friday’s official payroll report, the most significant economic report of the month. Several analysts cut their estimates for Friday’s figures following the disappointing ADP report.

ISM Manufacturing PMI came in at 53.5, well below estimates of 58.1. Vehicle sales fell short of estimates, clocking in at 11.8M vs. 12.9M estimated, and a steep drop from last month’s 13.2M sales. Weekly mortgage applications dropped by nearly 4%

Thursday’s reports will include weekly jobless claims, Factory Orders, Chain Store Sales and weekly oil inventories.

-Bradley Welcher

About the author: BinaryOptionStrategy- David Frank

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